|9 Months Ended|
Sep. 30, 2016
|Income Tax Disclosure [Abstract]|
Components of the income tax provision are as follows (in thousands):
The effective tax rate for the three and nine months ended September 30, 2016 was 31.4% and 31.0%, respectively, and for the three and nine months ended September 30, 2015 was 35.1% and 33.1%, respectively. Our tax rate has been favorably impacted in both years by the homebuilding manufacturing deduction. Due to the timing of enabling legislation related to federal energy tax credits, the 2016 effective tax rate for both the three and nine months ended September 30, 2016 was reduced, whereas prior year rates not were impacted until the fourth quarter.
On December 18, 2015, Congress passed the Protecting Americans from Tax Hikes (PATH) Act of 2015. The PATH Act was the enabling legislation for claiming federal energy tax credits on homes qualifying in 2015 and 2016. Under ASC 740, the effects of new legislation are not recognized until the period that includes the date of enactment. In accordance with ASC 740, at September 30, 2015 we did not recognize the benefit on our effective tax rate of claiming federal energy tax credits for qualifying 2015 homes. Rather, such benefit was recognized in the fourth quarter of 2015.
At September 30, 2016 and December 31, 2015, we have no unrecognized tax benefits due to the lapse of applicable statutes of limitations and completion of audits for prior years. We believe that our current income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material change. Our policy is to accrue interest and penalties on unrecognized tax benefits and include them in federal income tax expense.
We determine our deferred tax assets and liabilities in accordance with ASC 740-10, Income Taxes ("ASC 740"). We evaluate our deferred tax assets, including the benefit from NOLs, by jurisdiction to determine if a valuation allowance is required. Companies must assess whether a valuation allowance should be established based on the consideration of all available evidence using a “more likely than not” standard with significant weight being given to evidence that can be objectively verified. This assessment considers, among other matters, the nature, frequency and severity of cumulative losses, forecasts of future profitability, the length of statutory carry forward periods, experiences with operating losses and experiences of utilizing tax credit carry forwards and tax planning alternatives. We have no valuation allowance on our deferred tax assets and NOL carryovers at September 30, 2016.
At September 30, 2016, we had no remaining federal NOL carry forward or un-utilized federal tax credits. At September 30, 2016, and December 31, 2015 we had tax benefits for state NOL carry forwards of $1.7 million and $1.5 million, respectively, net of federal benefit, that begin to expire in 2028.
At September 30, 2016, we have income taxes payable of $3.0 million, which primarily consists of current federal and state tax accruals, net of estimated tax payments and tax credits. This amount is recorded in Accrued liabilities on the accompanying unaudited balance sheet at September 30, 2016.
We conduct business and are subject to tax in the U.S. and several states. With few exceptions, we are no longer subject to U.S. federal, state, or local income tax examinations by taxing authorities for years prior to 2012. We have one state income tax examination of multiple years under audit at this time and do not expect it to have a material outcome.
The tax benefits from NOLs, built-in losses, and tax credits would be materially reduced or potentially eliminated if we experience an “ownership change” as defined under Internal Revenue Code §382. Based on our analysis performed as of September 30, 2016 we do not believe that we have experienced an ownership change. As a protective measure, our stockholders held a Special Meeting of Stockholders on February 16, 2009 and approved an amendment to our Articles of Incorporation that restricts certain transfers of our common stock. The amendment is intended to help us avoid an unintended ownership change and thereby preserve the value of any tax benefit for future utilization.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/presentationRef